Pro-bailout Greek right claims victory

New Democracy party leader Antonis Samaras is cheered by supporters after he claimed victory in Sunday’s Greek national election. Samaras now faces the task of pulling together a pro-bailout ruling coalition. Photo: Reuters

Matthew Drummond Athens, Ben Woodhead and James Carlisle

The local sharemarket jumped almost 2 per cent on Monday after Antonis Samaras, leader of the pro-bailout centre-right New Democracy party, claimed a small lead in Sunday’s Greek election.

However, New Democracy will still need the support of at least one other party – probably the centre-left Pasok, led by Evangelos Venizelos – and investors will be closely watching the terms of any coalition, as well as the detail of any bailout concessions that may be sought.

The S&P/ASX 200 closed up 79.6 points, or 1.96 per cent, at 4136.9.

Currency markets also signalled approval to the election result, with the euro hitting $US1.2748, its highest since May 22, before falling back to 1.2709 by 4pm AEST, still ahead of its level of $US1.2655 late in New York on Saturday. The Australian dollar was trading at $US1.0112, up from $US1.0075 at the New York close on Saturday.

Pro-bailout New Democracy leader Antonis Samaras has declared victory in Sunday’s critical Greek election after counting gave conservatives a slender lead over radical left party Syriza.

In a speech to supporters in Athens, Samaras declared that Greece would continue to honour the commitments it has made to the European Union and International Monetary Fund under a crucial bailout package.

“We will not have a new adventure, we will not doubt the position of Greece in Europe. We won’t be feared,” Samaras said. “We don’t have time for small-time politics. We must bring development into the economy and assurances that we’re past the worst. We will respect the signatures and promises that we’ve made.”

The New Democracy leader addressed supporters following reports that he had received a phone call from Syriza leader Alexis Tsipras conceding defeat.

Samaras, who said the vote demonstrated Greek support for remaining in the euro, must now set about assembling a governing coalition, with the support of third placed pro-bailout party Pasok crucial to the formation of a workable majority.

A potential fly in the ointment is that Pasok has stated that it would like Syriza included in a broad, unity government. But political experts believe that Pasok, which is lead by former Greek finance minister Evangelos Venizelos, would come under intense international pressure to abandon that position.

For its part, Syriza has said it will not participate in a New Democracy-led government.

“Mr Tsipras phoned Antonis Samaras and told him to go ahead and form a government without Syriza and that Syriza is now the main opposition,” Syriza spokesman Panos Skourletis told Reuters.

Samaras’ speech came after Greece’s government broadcaster aired projections that would give New Democracy 29.5 per cent of the vote, with anti-bailout Syriza on 27.1 per cent. Pasok has 12.3 per cent while Democratic Left has 7.6 per cent.

That would give pro-bailout New Democracy and Pasok a combined 161 seats in the 300 seat parliament, enough of a majority to continue with the unpopular austerity reforms demanded by the European Commission and the International Monetary Fund.

The first place getter in Greek elections is entitled to an extra 50 seats, helping it to get the majority needed to form a government. The final numbers will depend on how many smaller parties clear the minimum threshold of support to gain seats in the parliament

To have the best chance of staying in the 17-member euro zone, Greece needs a government led by New Democracy and with enough of a majority to govern in the event of defections of party members, which are common in Greek politics when unpopular decisions made.

Plenty such decisions lie in wait for the new government, with €11 billion in further budget cuts required under the terms of Greece’s bailout package later this month.

The privatisation of state assets including ports, the railway and parts of the electricity sector has also been demanded by Greece’s lenders, the European Commission and the IMF. Finance ministry officials last week said without more money being provided under the bailout program the country would run out of money to pay pensions and public sector wages by July 20.

Investors and political leaders had fretted over a potential victory for Syriza, whose leader Tsipras declared his intention to renegotiate much of the bailout – a stance euro zone leaders such as German Chancellor Angela Merkel firmly rejected.

Economists have said uncertainty over the election outcome has already chilled activity and is likely to have caused Greece’s GDP to fall by even more than forecast.

Athanasios Vamvakidis, a foreign exchange strategist at Merrill Lynch said while the bail-out agreement projected the economy would shrink by 4.7 per cent this year, it is now likely to fall by 6 per cent and potentially more should New Democracy not form government.

That would put Greece’s deficit reduction program even further behind schedule and would increase the odds it will need further financial assistance later this year.

Any initial positive reaction may also be short-lived if New Democracy can’t form a ruling coalition and if it can’t hold government in the event of further Greek dissatisfaction with tough austerity measures.

G20 leaders, including Australian Prime Minister Julia Gillard, anxiously watched the outcome of the election as they prepare for several days of talks in Los Cabos, Mexico, this week.

Expectations were high that central banks and the G7 wouldl move quickly to stabilise financial markets should the outcome of voting heighten market turmoil.

Heading in to the G20 summit, the latest FT/Brookings Institutions Tiger index of world economic conditions gives world leaders more food for thought, with a finding that the global economic recovery has stalled in part due to politics in a number of key nations.

According to the index, growth in the US has slowed while much of Europe has slipped into recession and China’s growth outlook has weakened. Emerging economies such as India are also a concern.

“The engines of world growth are running out of steam while the trailing wagons are going off the rails. Emerging market economies are facing sharp slowdowns in growth while many advanced economies slip into recession,” the FT quotes Professor Prasad as saying.

Traders and world leaders are also looking to this week’s US Federal Open Market Committee meeting for actions that could help stabilise financial markets and bolster the US economy. Hopes are high that the Fed many institute monetary easing in the wake of week national employment numbers for May.

Elsewhere, French Socialists have secured an absolute majority in Sunday’s run-off parliamentary election, giving the party which came to power in May between 312 and 326 seats in the 577 seat National Assembly.

The count means President Francois Hollande will not need to rely on support from the Greens or far left to implement his policies.